An Oligopoly Market is a system of Markets where there are more than one Vendor (or firm) for trading of a particular good but there are very few Vendors. This is imperfect competition as the decision of one Vendor affects the decision of others in the Market, although the competition is very limited. The main characteristics of this type of Market is the interdependence of the Vendors that urge them to collaborate and compete with each other to control the Market, affecting the demand and supply based on the prices.
Characteristics:
As mentioned above, the main characteristic feature of this type of Market is interdependence of the firms. The other defining features of the Market are:
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Group behaviour: To maintain the Market system, all the firms have to work together.
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Restriction on entry: Entry in a tight knit Oligopoly Market is strictly restricted, new firms trying to grow up or existing Vendors trying to expand have to face serious competition.
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Emphasis on Advertisement: To get a bigger hold of the Market, each Vendor tries to reach out more through advertisements.
Types of Oligopoly Market
Oligopoly Markets can be classified differently based on different factors affecting the Market such as nature of the product, openness of the Market, degree of collaboration between Vendors, functioning and structure of the Market, etc.
Nature of the Market:
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Pure Oligopoly: The product in this type of Market is Homogenous, for example, the Aluminium Industry.
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Differentiated Oligopoly: The products are differentiated in this type of Oligopoly Market, for example, the Talcum Powder Industry.
Openness of the Market:
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Open Market: Here, any new firm trying to enter the Oligopoly Market can compete with the existing firms to establish a hold.
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Closed Market: Entry is strictly restricted to new firms.
Collaboration between existing Vendors in the Market:
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Collusive: The firms collaborate with each other and control the product output and Market price for the product.
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Competitive: In this type of Oligopoly, the Vendors do not co-operate with each other and compete instead.
Functioning of firms:
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Partial: When a firm takes a big hold of the Market and starts controlling the prices, the other Vendors have to comply accordingly. This is a case of partial Oligopoly Market.
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Full: When there is no price controlling Vendor and every Vendor works more or less the same way, it is full Oligopoly Market type.
Fixing of products price:
1. Syndicated Oligopoly: When only a very small group or an individual firm controls the sale of products, it is a case of Syndicated Oligopoly.
2. Organised Oligopoly: When all the firms work together to fix output, sale, prices, etcThe Market is called Organised Oligopoly Market.
Interestingly, the Oligopoly Market demand is marked by kinked demand curves. Therefore, oligopolists maximize profits by balancing marginal revenue with the marginal cost of the concerned product.